Combat Business Tax Dumping: CDU & Greens Take Action in North Rhine-Westphalia
CDU and Greens aim to curb corporate tax evasion practices - Coalition consisting of CDU and Greens aims to combat tax evasion in industries
Wanting to tackle the issue of so-called business tax havens in certain municipalities, the ruling CDU and Greens coalition in NRW demand immediate action from the new federal government. They propose boosting the minimum business tax rate, with a corresponding motion set to be presented in the state parliament next week. Currently, the Union and SPD at the federal level have agreed to lift the minimum rate from the existing 200% to 280%.
Business tax is a primary source of income for cities and municipalities across NRW. On average, the rates in NRW municipalities hover around 450%, with the highest rate reaching 700%. However, two municipalities, Monheim and its neighbor Leverkusen, maintain a rate of just 250%.
Aiming to tackle tax fraud
The CDU and Greens in NRW, following their agreement upon taking office in 2022, are determined to root out existing business tax havens in municipalities. To achieve this, they plan to embed regulations in the municipal finance law, making these tax havens less appealing.
In addition, the NRW state's financial administration will assist municipalities in identifying the true locations of businesses. The new NRW state office for combating financial crime has already prioritized the fight against tax fraud with the use of fake seats in business tax havens.
The high business tax revenues in business tax havens, despite their relatively lower rates compared to neighboring municipalities, indicate the practice of business tax dumping in some NRW municipalities. Not only is this a source of unfair competition, but it also encourages the establishment of pure "letterbox company" seats.
Municipalities on a consolidation path, which have had to increase their rates, are particularly vulnerable to aggressive tax competition and potential loss of revenue due to business tax havens, according to CDU and Greens.
"Communities are eroding each other's foundations"
Christof Sommer, CEO of the Association of Cities and Towns in NRW, commented, "A race to the bottom in business tax rates is a vicious cycle. Communities are eroding each other's foundations, and there are only losers."
Increasing the minimum rate is a positive step forward, according to Sommer, but ultimately, addressing the financial issues of municipalities requires a comprehensive approach.
The Association of Towns and Cities in NRW has already urged the state government in 2023 to take action against unfair business tax competition and advocate at the federal level for a package of measures. The state's financial and justice authorities should offer support to municipalities in combating illegal tax avoidance.
Speculative potential strategies to combat business tax dumping include:
- Harmonization of Tax Rates: Establishing a minimum tax rate across municipalities to prevent excessive competition.
- Incentives for Sustainable Practices: Providing incentives for companies to adopt environmentally friendly practices and invest in local communities.
- Centralized Tax Policies: Implementing centralized tax policies at the state or federal level to effectively regulate tax rates and combat dumping.
- Enhanced Transparency: Improving transparency around tax breaks and incentives to monitor and regulate their use.
- Investment in Infrastructure: Investing in infrastructure and public services to make areas more attractive to businesses without needing excessive tax reductions.
- The CDU and Greens coalition in NRW seek to combat business tax dumping by proposing a harmonization of tax rates, ensuring a minimum rate across municipalities to prevent excessive competition.
- The Association of Towns and Cities in NRW calls for a comprehensive approach to addressing the financial issues of municipalities, emphasizing the importance of investing in infrastructure to make areas more attractive to businesses, reducing the need for excessive tax reductions.
